The Impact of Twitter’s Acquisition by Elon Musk on the Crypto World
SpaceX and Tesla’s CEO, Elon Musk agreed to buy the US-based social media platform Twitter for $44 billion, and the deal was confirmed by Twitter.
Elon Musk’s Twitter Interest
The social media platform, Twitter, has 1.3 billion users worldwide. Twitter, which has a huge user base, is used not only as a place where people share their feelings and thoughts, but also as a source of news.
Elon Musk did not hesitate to express that Twitter has much more potential on the platforms he participated in and he was the key to paving the way, following started to share tweets.
Twitter is expected to launch new and different features for Twitter Blue, the community of paid users. By offering special privileges to users, different features from other users will be in use. Another feature among these privileges is that the tweet can only be seen by the desired people. In addition, later editing, adding and deleting can be done on the tweet.
The second feature is to eliminate the character limit in messages, allowing longer tweets to be sent. Musk had expressed his opinion that the 240 character limit was not enough, in a tweet he shared earlier.
The Impact of the Crypto World
Elon Musk is a technological visionary with a social network of more than 69 million followers on Twitter. He regularly voices his social media presence on various topics over cryptocurrencies such as Bitcoin and Dogecoin. There is an academic research on the effects of Elon Musk’s shares on the market. You can access this research by Lennart Ante from the link below.
https://www.researchgate.net/publication/349007665_How_Elon_Musk's_Twitter_activity_moves_cryptocurrency_markets (Revised version: 12 Jan 2022)
This article aimed to determine to what extent Elon Musk’s tweets about cryptocurrency directly affect the pricing and trading volume of cryptocurrencies. Elon Musk regularly comments and influences investor behavior and the market with his statements. It can be thought that individual and institutional investors also affect the decision-making process. By examining the data in this article, you can examine how Musk’s tweets about cryptocurrency affect the prices of cryptocurrencies, the impact on trading volume, and whether the effects differ by cryptocurrency. As a result of this article, it has been revealed that Musk’s tweets have a significant impact on the cryptocurrency markets in terms of price and trading volume. In addition, according to this research, while Musk’s tweets about Bitcoin and Dogecoin increase the transaction volume, the price movement changes according to whether the explanation is positive or negative. This is called the “Musk Effect”. Below are the results of some of these investigations.
Figure 4 shows cumulative log returns from 360 minutes before to 120 minutes after a Bitcoin-related tweet. The non-negative tweets clearly entail positive Bitcoin returns, while negative events appear to trigger a negative market reaction.
Elon Musk has a special interest in Dogecoin. However, with the acquisition of Twitter, works have started for payment transactions to be made with Dogecoin. With the acquisition of Twitter, Dogecoin has increased by 40%. With this increase, it has re-entered the top 10 most valuable cryptocurrencies on CoinMarketCap.
We see that a single tweet can cause a huge movement in the price and trading volume of a cryptocurrency. However, this makes it difficult to protect investors. The statements of someone who is influential all over the world like Elon Musk and his investments in crypto (the statement that Tesla cars can be bought with Bitcoin) seriously affect the decision making of market participants. Exchanges may need to establish a better mechanism against such movements.
Exchanges perform authentication, Know Your Customer (KYC), due to legal requirements. While it has many benefits, it also has some negative aspects. KYC is also planned for users on Twitter. Although this statement emphasized by Musk is said to be made with the aim of better expressing safer and free thought, this contradicts the principle of decentralization and anonymity in the blockchain and crypto ecosystem.